Inherited IRA & Inherited Inherited IRA-RMD-Multiple Ben
Father dies Sept 2008 at age 84, post RBD. No RMD was taken for 2008, but all RMDs were taken in the past. There are 3 beneficiaries (non-spouse). One IRA is in an Annuity at ABC Bank for $120,000 paying 4.9% until May 2009.
The other IRA was inherited from his deceased wife 4 years ago. The value is $9,000, and RMDs have been taken every year except this year (the year of his death.) The name of this IRA is “Joe/Beneficiary of Mary’s IRA” and he did not move any of the funds into his own named account. He named the same 3 beneficiaries (as above.) This IRA is at XYZ Bank earning 3% until Sept 2009.
Neither of the accounts have been separated; i.e., they are still in the name of the deceased, no RMDs have been taken, and no other actions have been taken.
1) I’m pretty sure [u]Father’s[/u] 2008 RMD needs to be taken by 12-31-08 but CPA says 12-31-[b]09[/b]. Who is correct?
2) Assuming RMD is required by 12-31-08 … is a letter to be sent to ABC Bank by EACH of the 3 beneficiaries, with their own social security numbers, asking for their 1/3 share to be distributed by 12-31-08? Shouldn’t the RMD be taken by the decedent’s Estate in the year of death and reported on their Estate tax return, or their final Form 1040?
3) If a letter is sent as noted in item #2, is the IRA/Annuity still “intact” and not yet divided into 3 separate IRAs, or did the RMD written request trigger the dissolution of the IRA/Annuity? So, in other words, can we each request 1/3 of the RMD without actually ownership of the IRA, or does providing our social security numbers automatically do that?
4) If we each take 1/3 of the RMD by 12-31-08, and the IRA/Annuity is still intact, can we leave it until the 4.9% expires in May, then separate it into 3 separate IRAs by doing a trustee-to-trustee transfer?
5) Once the IRA is separated into the 3 beneficiary IRAs, are the RMDs based on each owners life expectancy, and then that amount must be withdrawn by 12-31-09?
6) And finally, what happens with the Inherited Inherited IRA at the XYZ Bank? Are the 3 beneficiaries supposed to treat both IRAs the same even though one was inherited by the deceased? Can the funds be co-mingled?
I can’t thank you enough if you can help me figure this out. I’ve spent hours researching it, spoken to 3 banks, the CPA handling the Estate, 2 IRS people, and an Investment Firm, and I get conflicting information. The CPA seems unsure, I’m losing sleep and running out of time for a 12-31-08 deadline. help.
Abby
Permalink Submitted by Alan Spross on Fri, 2008-12-05 05:05
1) You are correct. It should be taken by 12/31/08, but if administrative problems prevent it, it is not a serious problem. The IRS is almost sure to waive any excess accumulation penalty for reasonable cause, and failure to take the RMD or identify the need in 3 months would be a reasonable cause. Of course, then it needs to be taken early in 2009.
2) I think you mean 1/3 of the RMD here. Yes, send them a death certificate or other documentation they request and the 3 SSNs. The RMD or any other post death distributions are to be paid to the beneficiaries, NOT to the estate. Each beneficiary will be directly taxed on their own share.
3 &4) The RMD can be issued without establishing separate accounts, but separate accounts should be requested no later than 12/31/09. It may be best to do this after the 4.9% rate expires, but insurers have their own rules and you will be best served by finding out the most cost effective way to terminate the annuity, and still be able to name your own successor beneficiaries as well as doing the transfer to separate accounts. Each beneficiary may have a different desire for where their separate account should be, but note that the IRA can only be moved by direct transfer. A normal rollover cannot be done and anyone getting a check made out to them cannot roll it over and it would be fully taxable.
5) Yes. Use each beneficiary’s age attained in 09 and the single life table, then reduce the divisor by 1.0 for each year thereafter.
6) The other inherited IRA remained in that status at father’s death, and therefore, the 3 successor beneficiaries do NOT get to use their own life expectancies. Rather, the remaining life expectancy of father must be used. Therefore, these funds should NOT be commingled with the other inherited IRAs due to the different RMD divisors. Neither should the RMDs be aggregated because the IRAs were inherited from different original owners.
Permalink Submitted by debbie osburn on Fri, 2008-12-05 12:30
Thank you so much for your prompt reply. I am very grateful.
I have a few follow-up questions, if you please?
1) Regarding the Inherited Inherited IRA for $9,000 … do we treat it the same way as the other IRA by sending in 3 separate letters, each requesting 1/3 of the RMD by 12-31-08? Or, since it is comparatively small amount for 3 people, could we request to each take $3,000 and then satisfy the RMD [u]while also [/u]dissolving the IRA, and then be done with this IRA? In either case, whatever money is taken is taxable, correct?
2) Is there a difference between “rolling over” and a “trustee-to-trustee transfer” in order to get the decedent’s IRA to a beneficiary’s IRA? Is the main idea behind this procedure [i]to not actually take possession of the money? [/i]
3) Doesn’t IRC 402(c)(11) [u]require[/u] that rollovers be allowed for plan years beginning 1-1-09?
Again, thanks so much for your prompt reply. I think I love you.
Abby
Permalink Submitted by Alan Spross on Sat, 2008-12-06 01:33
1) Yes, handle the RMD request the same. But if total distribution is desired, just ask for 1/3 to be distributed to each. No sense then in setting up any separate accounts. Usually, the amounts will be taxable, but if there was any basis in the original owner’s IRA, it would be inherited by the beneficiaries, and there would still be some left. The easiest way to determine that is to look for Form 8606 on father’s recent tax returns. This 8606 would be separate from the 8606 on his OWN IRAs if there is any basis.
2) Yes, the inability to cash the check is key. When a check is made out to a beneficiary, the distribution is taxable and cannot be rolled over unless it is a spouse beneficiary. But an inherited IRA can be moved to another IRA custodian ONLY by a direct transfer between the two. This can include a check made out to the “new IRA custodian FBO beneficiary’s name IRA” and delivered to the new IRA custodian. But it is safer to have the custodians handle it directly if possible.
3) 402(c)11 only applies to non spouse transfers from qualified plans to inherited IRA, not transfers from inherited IRAs, which are already permiited. The qualified plan transfer is presently optional, and there are proposals to make it a requirement, but this section does not apply to rollovers OF an inherited IRA. I think this may be coming, but not here yet.